DEFINITION of 'Decision Analysis - DA'

Decision analysis (DA) is a systematic, quantitative and visual approach to addressing and evaluating important choices confronted by businesses. Decision analysis utilizes a variety of tools to evaluate all relevant information to aid in the decision making process and incorporates aspects of psychology, management techniques and training, and economics. It is often used to assess decisions that are made in the context of multiple variables and which have many possible outcomes or objectives. It can be used by individuals or groups attempting to make a decision related to risk management, capital investments and strategic business decisions. A graphical representation of alternatives and possible solutions, as well as challenges and uncertainties, can be created on a decision tree or influence diagram. More sophisticated computer models have also been developed to aid in the decision analysis process.

The term decision analysis originated in 1964 by Ronald A. Howard, professor of Management Science and Engineering at Stanford University.

BREAKING DOWN 'Decision Analysis - DA'

Decision analysis (DA) can be employed by large and small corporations alike when making various types of decisions including management, operations, marketing, capital investments or strategic decisions.

Example of Decision Analysis

For example, if XYZ real estate development company were deciding whether or not to build a new shopping center in a location, they might examine several pieces of input to aid in their decision-making process. These might include traffic at the proposed location on various days of the week at different times, the popularity of similar shopping centers in the area, financial demographics and spending habits of the area population, local competition, and preferred shopping habits of the area population. All of these items could be put into a decision analysis program and different simulations could be run that would help XYZ company make their decision about the shopping center.

Despite the helpful nature of this tool, critics of decision analysis cite "analysis paralysis," which is the over-thinking of a situation to the point that no decision can be made, as a negative and likely outcome of decision analysis practices. In addition, some researchers who study the methodologies utilized by decision makers argue that this type of analysis is not often used.

RELATED TERMS
  1. Decision Tree

    A decision tree os a schematic tree-shaped diagram used to determine ...
  2. Risk Analysis

    Risk analysis is the process of assessing the likelihood of an ...
  3. Investment Analysis

    Investment analysis involves researching and evaluating securities ...
  4. Quantitative Analysis (QA)

    Quantitative analysis (QA) is a technique that seeks to understand ...
  5. Financial Analysis

    Financial analysis is the process of assessing specific entities ...
  6. Incremental Analysis

    Incremental analysis is a decision-making technique used in business ...
Related Articles
  1. Investing

    Using Decision Trees in Finance

    Decision trees are a major tool that can be used in corporate finance and economic forecasting. Discover how binomial trees plays an integral role in pricing of interest rates.
  2. Investing

    How's Your Mutual Fund Really Doing?

    Determine how mutual funds are doing by sizing them up against their peers.
  3. Trading

    Basics Of Technical Analysis

    Learn how chartists analyze the price movements of the market. We'll introduce you to the most important concepts in this approach.
  4. Investing

    A Checklist for Assessing Your Investment Risk

    In order to make the best investment decisions, it's important to be aware of and understand how much risk you are willing to take.
  5. Investing

    Fundamental Analysis for Traders

    Find out how the fundamental analysis method can be applied strategically to increase profits.
  6. Investing

    What Is Fundamental Analysis?

    Fundamental analysis is one of the basic ways to evaluate stocks. Find out what it is and how it can work for you.
  7. Financial Advisor

    Advisors and the Behavioral Finance Dilemma

    Sometimes advisors can fall prey to the same behavioral finance biases as their clients.
  8. Managing Wealth

    3 Seemingly Non-Financial Decisions Everyone Should Take More Seriously

    None of these decisions should be considered as being purely financial, but there are severe consequences to ignoring their financial side altogether.
RELATED FAQS
  1. How are business decisions made in a partnership?

    Understand how partners in a business can tackle decision making, and learn the options available for partnerships to develop ... Read Answer >>
  2. How does marginal analysis help in managerial decisions?

    Find out how marginal analysis helps to identify the optimal distribution of resources and planning for an organization making ... Read Answer >>
  3. What are some of the better types of financial analysis software?

    Discover what features make for good financial analysis software, some popular options and why analysts need to pick the ... Read Answer >>
  4. How does financial accounting help decision making?

    Read a brief overview of some areas where financial accounting helps in decision making for investors, lending institutions ... Read Answer >>
  5. What is the difference between financial forecasting and financial modeling?

    Understand the difference between financial forecasting and financial modeling, and learn why a company should conduct both ... Read Answer >>
  6. How do I take qualitative factors into consideration when using fundamental analysis?

    Fundamental analysis is the method of analyzing companies based on factors that affect their intrinsic value. Find out how ... Read Answer >>
Trading Center